If you run a business, you may have found yourself looking at your bank account, wondering how it’s possible that you can be busier than you’ve ever been, and still not have much cash to show for it.

The truth is, just about every business we’ve worked with has hit that first critical growth ceiling when they’ve figured out how to get clients and customers, but are still struggling with cash flow and profitability.

In this post, we are going to walk you through the 7 strategies we’ve used to not only lead clients to improve profitability but to also show their progress and hone their strategy along the way. The 7 strategies we are going to cover include:

1. Create a sales funnel

If you’re looking to improve your business’s profitability, start from the beginning: your sales pipeline. 

By using a strong customer relationship management system to build up your sales funnel, you’ll become more effective at forecasting revenue. When using a sales pipeline that’s embedded in your business management platform, cross-checking with project and operations managers becomes easier and more efficient.

Building a strong sales funnel does not only mean getting as many leads as you can in your pipeline, but rather whether or not the estimates that you send out will yield profit. So one of the first crucial questions any service provider needs to address to increase their profitability is: How much should you charge for your services?

2. Nurture Your Repeat Clients

One of the biggest complaints customers make about marketing messages is that they’re all about selling something. The best sales pitch is a good customer relationship.’ This is very true. Nurturing existing customers and ensuring their ongoing repeat business always represents a far lower cost per sale than brand new customer acquisition.

Of course, you have to constantly be growing your new business pipeline, but it is amazing how many companies fail to maximize the value of existing clients or very warm prospective customers – people who may have bought once or have not bought, but who are regularly visiting your site or clicking on your email communications. Maybe a tailored offer or reward is all it would take to keep them coming back and purchasing again?

3. Maximize Your Billable Utilization

A utilization rate is an important number for businesses that charge their time to clients and for those that need to maximize the productive time of their employees. It can reflect the billing efficiency or the overall productive use of an individual or a firm. It is the strongest indicator of how busy your business is performing—and how profitable your projects are. 

But to get utilization data in real-time, a prerequisite is regularly tracking time. Both billable and non-billable hours.

Businesses often experience challenges with getting their teammates to track time. Employees can feel like their work is being watched, questioned, and will be valued less. Maybe they’ll even end up being micromanaged once their manager finds out precisely how efficient they are.

But really, all you’re trying to do as management is figure out: How is my management’s time being invested? 

4. Optimize Your Ratio of Billable and Non-Billable Staff

Following the previous tip, and being a type of business that generates many non-billable costs, it’s necessary to optimize your ratio of billable and non-billable staff.

Since salaries are one of the biggest expenses of every business increasing the percentage of billable staff can majorly impact your business’s profitability. More specifically, billable staff utilization is what you’re looking to maximize. 

Billable staff utilization shows you the percentage of time an employee is working on client work vs. the percentage of time that an employee is available to work in total. In other words, this metric shows you how effectively your employees are working.

5. Regularly Look Into Project Budgets and Profitability Insights to Reduce Cost Overruns

Cost control is an essential part of any financial strategy. When monitoring your company’s finances, how can you stay within budget? 

Just like personal budgeting, you can do a variety of things, like categorize spending, determine areas where your team spends the most money, and find ways to limit spending in each area. Successfully doing all these things is what controls the budget and increases profits.

The basic principles of cost control are similar for corporate and personal budgets. There are likely many people involved in your company’s cost management operation. Depending on how big your team is, you may have different people working on resource planning and budgeting. 

To properly control costs, teams must monitor spending at various levels within the company. This allows each part of the company budget to receive thorough attention and analysis. 

Generally, there are two ways to reduce cost overruns, and your management can do them in parallel:

1. Increase your number of retainers or recurring revenue projects

If your business is already investing time in building strong client relationships, you’re halfway there to getting repeat customers. Increasing trust between you and your clients and keeping in touch with them will increase your chances of securing retainer agreements. Maintaining software, providing support, regularly ensuring social media marketing materials—these are all examples of long-term commitments that clients will likely agree to.

2. Change your project pricing from fixed-cost to Time and Materials

Generally speaking, businesses that work on Time and Materials pricing tend to have a safer source of income. But of course, your ability to change your pricing policy will vary greatly, depending on the kinds of services you offer. So, negotiating these rates will affect how profitable your projects are.

If you’re a software development business, one way to change project pricing from a fixed-cost agreement to Time and Materials is switching your sales team to quote projects as Sprints with dedicated teams.

6. Regularly Forecast Your Management’s Expenses

To run a successful business, forecasting is essential. It’s embedded in the game.

Think about it: for your business to forecast revenue, you need to be able to forecast several other activities. Start with your sales pipeline. You need to be able to foresee demand but to predict demand, your business also needs to be able to forecast resource availability. With your resources and time allocated for potential upcoming work—you’re forecasting project management, too. And finally, you can get a glimpse of your forecasted revenue. 

Generally, 4 aspects of management are prerequisites for forecasting your businesses overall revenue:

• Forecasting Sales Revenue
• Forecasting Resource Management
• Forecasting Utilization
• Forecasting Revenue

From sales forecasting to resource allocation and project management and expense tracking—many factors play into the data we use for forecasting revenue and profit.

But how about getting even more specific, like looking at forecasted revenue by the client or forecasted profitability by a project? In the tricky business of selling services and a rapidly shifting digital economy, it’s reassuring to be able to predict your revenue.

7. Manage Your Overhead Costs

In business, one adage has proven to be true time and time again: “You need to spend money to make money.” But there also comes a point when your expenses far outweigh your income—and that’s a recipe for disaster.

It’s unsustainable for your company to always be in the red. While you can’t eliminate expenses, there are many ways you can decrease your overhead expenses, increase your profit margins, avoid fatal cash flow problems, and keep your business afloat even through economic downturns and low sales periods.

Usually overhead can be divided into two categories:

1. Facility cost: utilities, office space rent, equipment, etc.

2. Internal cost: the expense of time spent on internal work

For types of businesses that rely on income through the services they provide, it’s key to see parts of your overhead (internal work) as investments for your long-term growth. These could be marketing and sales activities, networking events, training, etc. Now, there’s no official industry standard rate to calculate overhead. But for an understanding of your business’s true profit per project, you can factor your overhead into your profit calculations.

Protective’s algorithm calculates overhead costs per hour. It factors overhead into profit margin calculations by covering the two major expense categories that businesses are faced with: project expenses and salaries. 

Looking For a Better Way to Manage Your Business Profitability?

Maybe you’re uncertain about how much your business should charge for its services or you want to see what it’s like to have all your key metrics available in real-time. Reach out to our Sales team and book a demo call to learn more about how Productive can help you manage your business’s profitability.